house with arrow_1People who have a house to sell as a result of being tired of landlording, going through a divorce, or inherited a property that they don’t want are all looking for the same thing. They want to sell the house as fast as possible and for the highest price possible.

But typically we have seen that they want to accomplish this without listing it with a real estate professional. They want to avoid the multiple showings, multiple offers with strings of contingencies, and most of all paying the 6% commission fees to the agents. These sellers understand that this does not accomplish the fast and highest options available to them.

An alternative to this traditional method that does accomplish seller goals is to work with a real estate buyer/investor to create a win-win for all in the transaction. Most investors will present a cash offer to sellers that may seem quite low, but keep in mind that investors buy for future profit.

What many sellers don’t see in these cash offers are the costs involved to turn the property by the investor to gain a smaller profit than you may think.  When an investor buys with cash he/she is typically borrowing that cash from somewhere else. There is a cost of borrowing money involved, then the repair/update costs to get the house retail ready, and what most don’t see are the holding costs incurred until the property is sold.

These costs include: Electric, water, gas, home owner’s insurance, property taxes, trash removal, and lawn maintenance to name a few. Then the investor will typically list the property for sale with a real estate agent incurring the 6% commission themselves. These costs minus the selling price reflects a smaller profit than you think when receiving their lower than expected cash offer.

So what does all this mean to you? And how can you get a higher price for the house?

Since you know the investor’s strategy you can present a win-win for the both of you by offering them seller financing options. You are secured in your position and investors will pay more for your house. They will do so because they won’t have to find and qualify for another loan, it frees up cash that they can otherwise put into the repair and marketing of the house when they are ready to sell.

Your benefits on the other hand are:

  • getting a higher price for the house (this is worth paying more for the price rather than getting a loan)
  • you can defer capital gains taxes on a longer term sale ( check with your accountant for specifics)
  • you have first lien position in the property so that should a default occur you simply keep the money already paid and take ownership of the property back and do it again if you wish,
  • you can structure to get the amount of cash you “need” now and have a continuous cash flow coming in each month without the obligation of any maintenance to the property.

There are many ways you can structure a deal like this and here are a few examples:

In these examples, we’ll use your asking price of $100,000 and the investor’s cash offer of $75,000.

Creating a note for the purchase:

You can create the terms for the investor like a smaller down payment in cash and terms on the rest of the amount. Even if the interest rate is a tad higher than they could get at a bank it’s still worth it to the investor not to get another loan. Maybe on a $100,000 purchase price, with $5000-10000 down and the remaining paid in monthly installments at 4.5% for 10 years. The closing title attorney can draw that up at closing for you.

100 months

$1000 for a hundred months. This benefits the both of you because you get your asking price and steady cash flow without the headache of property tax, insurance, and maintenance. This again benefits the investor because no loan, and he/she has a paid off property in nearly 8 years.

Offering partial seller financing

Even if you would rather not offer the entire purchase price on owner financing terms you can always offer a partial. For example, maybe you offer a note for 30% of the purchase price and the remaining 70% in all cash. This also assists the investor in getting a better loan to finance the repairs as well. Again, this is another win for you.

So there you have a few options to get the highest price for your house by offering one of these varieties of owner financing. Now you can see a little more behind the curtain with the reasoning behind the investor cash offer. As stated before, using this strategy is a win for the seller and a win for the investor buyer.

Do you have a house to sell in Louisville, KY?  If so, and you would like to discuss any or other options with me; call or complete this short form.

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